In my post about Paul Krugman, I noted that taxes don’t create prosperity. That provoked a response today from a thoughtful commentor named Levi, a reply which included the following observation:
“In 2010 93% of the income gains went to the top 1%.”
I have not done any independent research to confirm this statistic, but I have no reason to doubt its veracity. Setting aside the fact that this has absolutely nothing to do with whether or not taxes create prosperity – they don’t – I thought this would be the perfect opportunity for me to express how I feel about that particular disparity and income inequality in general. Fact is, I’m totally cool with it. And here’s why.
Imagine a setting where you and your friend bump into an all-powerful genie who decides to magically set your income for the rest of your lives. But rather than accommodate your wishes, the genie offers two possible scenarios instead. In the first, you would make $100,000 a year, while your friend would make $1 million a year. In the second, both of you would make $40,000 per year.
Which do you choose? Easy. #1. You choose #1.
What? You don’t choose #1? Who in their right mind would choose scenario #2? In scenario #1, the million made by your friend doesn’t come out of your pocket, so why would you forego 60 grand’s worth of income just to spite him/her? I do not understand that at all. I would much rather have more myself than insist that I and someone else have less just to satisfy some abstract concept of equality. Or is envy strong enough to persuade you to impoverish yourself at your friend’s expense? Again, that makes absolutely no sense to me.
The problem, it seems to me, is that too many people, and, implicitly, our friend Levi here, assume that any excess wealth that the 1% generate is coming out of the pockets of the poor. It isn’t. If income inequality actually were an issue of divvying up a finite pot, then it would definitely be a cause for concern. But the pot isn’t finite, and it’s not a question of divvying; it’s a question as to whether or not there’s going to be a pot at all.
To understand this, consider The Parable of the Rolling Stones.
2012 marks the Rolling Stones’ 50th anniversary. As they approach their 70th birthdays, the Stones have chosen to commemorate the occasion by performing at a handful of concerts in London and New York and charging an obscene amount of money for the tickets thereto. The end result will be a flurry of economic activity, which will benefit thousands of people, including various ticket vendors, marketers, stadium workers, T-shirt manufacturers, et al, but, most of all, it will greatly benefit four guys named Mick, Keith, Ron, and Charlie, who will likely pocket the lion’s share of all revenue generated, perhaps not 93% of all of it, but certainly close.
In our parable, however, a certain Whiner comes forth to decry the Stones’ greed, insisting that all monies should be distributed equally. Who are we to decide that Mick Jagger should thusly receive such a bounty when the guy selling keychains with Mick’s cartoon lips on them only gets twenty bucks an hour? Inequality, wails the Whiner! And thus the Whiner, along with other champions of fairness, did fashion a financial structure in which the highest and mightiest Rolling Stone received no more remuneration than the lowliest Keychain Vendor. And there was much rejoicing… until there was no more show.
Yes, for it seems that the mightiest of the Rolling Stones decided that it wasn’t worth their time to put on such a splendid spectacle without an accompanying obscenely massive compensation package, and thus they did cancel the concerts and all accompanying economic activity attached thereto. Instead of receiving the hefty compensation promised by the Whiner, the Keychain Vendor did verily receive nothing at all. The Keychain Vendor then longed for the $20 per hour he might have gotten had he not thrown in with the Whiner and stirred the pot, but alas.
And thus did fairness fell financial felicity for Stones, Whiners, and Keychain Vendors alike. Amen.
That’s how it works. That’s how it always works. When fairness becomes the preeminent value, everyone suffers, but at least they suffer equally. The only way to create income equality is to tear down the incomes of the highest earners.
This is true, incidentally, in non-financial fields of human endeavor, too. Is it fair that Lebron James is a much, much better basketball player than I am? No. So how to make us athletically equal? There’s no way to make me as physically capable as Mr. James, so you’d have to make Mr. James considerably less capable, with methods that might include tire irons administered to key body parts. Why would you want to do that? You achieve nothing and destroy much, all in the name of an elusive and unobtainable “fairness” or “equality” that does nothing but diminish.
So back to economics. The goal should not be to make incomes more equal. The goal should be to make all incomes higher and improve everyone’s quality of life. When there’s a way to make the poor richer, then it’s usually worth doing even if it makes the rich a whole lot richer along the way.
By the way, Keith Richards has been dead since 1977 and nobody’s noticed.